LS13 - Consumer And Producer Surplus

Question 1

Consumer surplus

Answer 1

Extra amount of money consumers are willing to pay for a good or service above what they actually pay
Top triangle

Question 2

Producer surplus

Answer 2

Extra amount of money paid to producers above what they are willing to accept to supply a good or service

Question 3

Incidence of indirect tax

Answer 3

Refers to distribution of tax between C + P. When demand is price elastic, burden falls mostly on producers. When demand price inelastic, burden falls mostly on consumers

Question 4

Incidence of a subsidy

Answer 4

Refers to how gains of subsidy distributed between C+P. When price elastic, gains to producers. When inelastic, gains to consumers